Solis wants to lower colon’s upper band

April 9th, 2014 (InsideCostaRica.com) President-elect Solis wants to lower the colon’s ‘upper band,’ or ceiling on the currency market to avoid volatility that has seen the colon lose 9% against the dollar in the last few months, he said.

Costa Rica’s colon currently trades in a band that is set by the Central Bank, which currently dictates a floor price (lower band) of ¢500 to $1, with a ceiling price (upper band) of ¢825 to $1.

“The first thing is to flatten the (trading) bands. That is fundamental,” President-Elect Luis Guillermo Solis told Reuters in an interview. “We want smaller bands to allow for less aggressive fluctuations.”

Helio Fallas, Solis’s running mate, gave more details. When asked whether he would like to see the band’s ceiling for the colon lowered to 600 from around 825, Fallas told Reuters: “Yes.”

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With the various corporate votes of confidence now pouring in you will most likely see a 4 digit dollar rate during your tenure.

The bands will be irrelevant as currencies go straight up parabolic against your colon. Enjoy the ride, my friend.

expatin paradise

I’m not sure how far president-elect Solis would go with this, but one would have to lower the upper band to 550 to have had even a minimal effect upon the recent volatility. I’m glad that the current bands were in place the past few years because the lower band kept the value of the dollar from plunging lower than 500,000 – we rode that lower band for a long time.

Your comment that bands will be irrelevant if currencies exceed the current upper band is not true, however. Some governments control the rates at which their currencies trade, with official rates sometimes varying substantially from the black market rates. Many of the current problems in Venezuela today stem from the fact that the official value of the Bolivar is being kept very low to prevent people from buying dollars and taking wealth from the country. This makes imported goods, even essential ones, too expensive to buy – toilet paper, milk, and other essentials are in very short supplyfor x x t. In such Ac

Ken Morris

Yeah, Solis either misspoke or his statement is reported out of context, since the bands would have to be really narrow to avoid 9% movement.

I do though think that either narrower bands or more transparency regarding the Central Bank’s guidelines for intervention would be helpful, maybe both. The current possibility of the colon devaluing by 40% overnight is not good for stability, and it strikes me as dangerous for the bank to keep its intervention guidelines secret.

We also know that the Central Bank is quite capable of keeping the currency value reasonably stable. It held the floor for years (which I appreciated too) not by fiat, which if attempted would have created a black market, but by policy, and its recent interventions clearly stalled and even turned around sudden devaluation.

Of course, there are limits to what the Central Bank can do (as well as probably to what it should do) so the currency does need to float to some extent. However, it seems to me that narrower bands and/or more transparency in the intervention guidelines would be good.

PublicEnemy2u

Prices in dollars haven’t reflected value correctly for years. Travelers and and tourists talk and CR is now off the affordable “must visit” list of countries … and this makes it worse It would help if my money had the same value in colons when I buy them as when I sell them.

Fabrice Drouin Ristori

Costa Rica should completely reject the dollar and have a look at the gold backed currency that Panama is gradually moving to (the balboa). With a currency pegged to the dollar there is no way inflation will go down in Costa Rica, it’s going to get worse since billions of dollars are printed every months. The dollar global rejection has already started which mean hyperinflation in the long run for dollarized economies.

Karen Mata

Spot on. Panama reportedly has about 33 tons. Look for a new partially gold backed world reserve currency within the next several years. Think yuan or ruble based as both countries reportedly have multiples of US stated reserves. US gold reserves have most likely been lent into the market and are long gone, as the US was recently unable to return 300 tons which Germany requested be repatriated.

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